How is the Wealth Pie Divided?

I read an article in The Atlantic recently that was a bit shocking and eye-opening, titled “Americans Want to Live in a Much More Equal Country (They Just Don’t Realize It).” The article focused on people’s ideal, actual estimate, and the reality of how American wealth is divided up amongst the population.

Let’s suppose there are 100 people in a fictitious society and the average “wealth” per person is $50,000, for a total of $5 million in wealth for the whole society. Of course that $5 million would not be divided evenly because some people do better than others whether through luck, perseverance, or a little of both. On the opposite end, some don’t do well for a host of reasons.

Speaking of how well people do, let’s divide the 100 people into five groups of 20, so we have the bottom 20%, the next 20%, the middle 20%, another 20%, and finally, the top 20%. My question for you would be this: how would you divide the wealth pie between the five groups? In other words, how much of the $5 million should each group get?

In the article referenced above, people were asked a similar question without referring to actual dollars. According to their answers, in an ideal society, the top 20% would get 32% of the wealth. That would translate into $1.6 million, or 60% more than everyone would get in an “even” split. Then they were then asked to estimate how much total wealth the top 20% actually had, and they guessed almost 60%, which would translate into $3 million of our $5 million pie.

So what was the actual split in America? The top 20% in our society have 84% of the wealth, or $4.2 million of the $5 million pie! More shocking than that, is what the bottom 40% have to split – a whopping .3%. That means in our fictitious society the bottom 40% would have $15,000 of the $5 million wealth to share among 40 people. You read that right, $15,000 to share among 40 people.

In the field of influence, we talk about the contrast phenomenon which tells us what is presented first, i.e., how things are ordered, can make all the difference in how people assimilate the information. On this subject, in an article I posted last year, I wrote:

“We would do well to always ask ourselves what we’re comparing to and whether or not it’s a valid comparison or the best comparison. For example, I heard on a conservative news channel the Illinois state legislature was considering a 66% increase in the state income tax. Wow, that should be cause for revolt in this economy! But here’s the perspective from the other side; the state income tax would only go up 2 percentage points. And here’s where both comparisons come from; the tax will go from 3 percent to 5 percent. That’s 2 percentage points, a 66% increase. I’m sure those opposed to the tax talked about a 66% increase whereas those in favor focused on the 2 percent change. Both are valid and both will elicit completely different responses! Compared to what?”

As people see the inequity in our country more clearly it’s a sure recipe for discontent and that discontent will manifest itself somehow. We saw the beginnings of that with the “We are the 99%” and “Occupy Wall Street” movements. I don’t think people expect everyone will get the same slice of the pie but many feel they have very little opportunity to better themselves because of the obstacles they face. On the other end there’s the old saying, “the rich get richer,” because wealth reinvested usually creates income without the obstacles so many people have to overcome.

With the presidential election coming up, both sides are talking about the same issues but in very different ways. How each candidate presents his case will impact how Americans think about the issues and ultimately vote. As we struggle with record deficits, there is quite a bit of talk about how to rein the deficit in. In the most basic terms we can collect more money through taxes, reduce government spending, or have some combination of the two. My encouragement to you is simply this; during the election season pay very close attention to what is presented and how it’s presented so you can make the most informed choice.